Types of Business Ownership (Chapter 1)

Question 1

What is a Sole Trader?

Answer 1

A business entity owned by one person.

Question 2

What are 3 advantages of a Sole Trader?

Answer 2

• cannot sue or be sued in its own name
• the owner is entitled to all profits
• separate accounting entity

Question 3

What are 4 disadvantages of a Sole Trader?

Answer 3

• cannot enter contracts
• owner supplies all cash and other assets to the business
• ownerff is legally liable for all debts
• sole traders have no continuity of existence
• not a separate legal entity

Question 4

What is a Partnership?

Answer 4

An unincorporated business owned by 2-20 (exceptions) or more people with a common view to make a profit.

Question 5

What are 3 advantages of a Partnership?

Answer 5

• separate accounting entity
• shared ideas and knowledge
• shared workload

Question 6

What are 3 disadvantages of a Partnership?

Answer 6

• withdrawal/addition of new partner dissolves old partnership
• unlimited liability
• disagreements between partners

Question 7

What is a Partnership Agreement and why are they important?

Answer 7

A partnership agreement is either a verbal or written legally binding agreement that sets out the important features of a partnership. In the absence of a partner agreement, the legislation specified in The Partnership Act 1895 will apply.

Question 8

What is a Small Proprietary Company?

Answer 8

A business that has a consolidated revenue of less than $25 million and/or consolidated gross assets worth less than $12.5 million and has 2-50 employees.

Question 9

What are 3 advantages of a Small Proprietary Company?

Answer 9

• limited liability
• a person can sell shares to leave business
• separate legal and accounting entities

Question 10

What are 3 disadvantages of a Small Proprietary Company?

Answer 10

• expensive to set up
• profits shared amongst many
• must operate within Corporations Act

Question 11

When choosing Legal Structure, what 4 factors should one consider?

Answer 11

Size, Tax, Ownership, Liability.

Question 12

What is a Franchise?

Answer 12

A license that grants a franchisee access to a franchisor’s proprietary business knowledge, processes and trademarks, thus allowing the franchisee to sell a product or service under the franchisor’s business name.

Question 13

What is a Franchisor?

Answer 13

The original business - it sells the right to use its name and idea.

Question 14

What is a Franchisee?

Answer 14

Buys the right to sell the franchisor’s goods or services under an existing business model and trademark and established customer base.

Question 15

What are 3 advantages of a Franchise(e)?

Answer 15

• access to an established company’s brand name
• don’t need to spend resources getting your name and product out to customers
• franchisors offer training and financial planning

Question 16

What are 3 disadvantages of a Franchise(e)?

Answer 16

• heavy start up costs
• ongoing royalties between 4.6% - 12.5%
• lack of control over territory or creativity with the business

Question 17

What is a Non-Profit Organisation?

Answer 17

A non-profit organisation is not operating for the profit or gain of its individual members. Any profit goes back into the operation of the organisation to carry out its purposes and is not distributed to any of its members.

Question 18

What are 3 advantages of a Non-Profit Organisation?

Answer 18

• inexpensive to incorporate
• few formalities and a low compliance requirements
• may be eligible for tax exemptions

Question 19

What are 2 disadvantages of a Non-Profit Organisation?

Answer 19

• limited to operating in the state of incorporation
• not closely monitored or regulated so no clear guidelines for operation and for resolving disputes